Federal prosecutors charge ex-CEOs of MoviePass, parent company in alleged fraud scheme

Former executives astatine MoviePass and its genitor institution person been charged with fraud, according to a national indictment that was unsealed Friday.

Theodore Farnsworth, 60, erstwhile CEO of Helios & Matheson, and Mitchell Lowe, 70, erstwhile CEO of MoviePass, are charged with misleading investors and making mendacious statements astir the movie subscription work to boost the banal terms of its genitor company, Helios & Matheson Analytics.

The indictment alleges that Farnsworth and Lowe successful 2017, portion describing the company's $9.95 "unlimited" movie program arsenic thoroughly tested, sustainable and profitable, were alert that MoviePass's connection was a selling gimmick and that its genitor institution did not person the exertion oregon capableness to monetize subscriber data.

Nor had the institution done the rigorous selling investigating that it claimed to person completed, the Justice Department said.

MoviePass skyrocketed to popularity successful 2017 due to the fact that of its seemingly too-good-to-be-true unlimited movie walk that initially offered customers 1 movie voucher per time for $30 to $40 a month. The anticipation was that astir subscribers wouldn't really usage the work regularly, successful the aforesaid mode that gyms are capable to offset inexpensive monthly fees due to the fact that of no-show subscribers.

However, galore MoviePass subscribers began to usage the work excessively often and the institution started to suffer wealth quickly. In an effort to enactment afloat, MoviePass began limiting the fig of titles disposable among different restrictions. The work underwent respective iterations of terms and offerings earlier shuttering.

Without the backing of movie theaters, which had balked astatine MoviePass' concern exemplary and intrusion into the industry, the institution was forced to dismantle successful September 2019.

Co-founder Stacy Spikes regained ownership of the institution successful precocious 2021, but a caller mentation of MoviePass has yet to marque its authoritative debut. The institution is presently readying beta tests successful respective cities including Chicago. The anticipation is that the caller subscription volition connection 3 pricing tiers for $10, $20 and $30, respectively, with each level having a definite fig of credits that tin beryllium utilized towards redeeming movie tickets.

Lowe and Farnsworth bash not look to beryllium connected to the caller iteration of MoviePass.

According to the DOJ document, the brace besides allegedly knew that the terms of MoviePass' unlimited program would not beryllium capable to offset losses. The program was to turn caller subscribers, inflate Helios & Matheson's banal and pull caller investors, the indictment said.

The quality of the indictment comes aft the Securities and Exchange Commission successful September accused Lowe, Farnsworth and different erstwhile MoviePass executive, Khalid Itum, of making mendacious statements and falsifying records.

"The indictment repeats the aforesaid allegations made by the Securities and Exchange Commission successful the Commission's caller ailment filed connected September 27th against Mr. Farnsworth, concerning matters that were publically disclosed astir 3 years agone and wide reported by the quality media," said Chris Bond, a spokesperson for Farnsworth successful a statement. "As with the SEC filing, Mr. Farnsworth is assured that the facts volition show that helium has acted successful bully faith, and his ineligible squad intends to contention the allegations successful the indictment until his vindication is achieved."

Representatives for Lowe did not instantly respond to petition for comment.

On Friday, the Justice Department said Farnsworth and Lowe are alleged to person falsely claimed that the fig of tickets MoviePass subscribers were purchasing arsenic portion of their subscription was declining implicit time. Instead, the brace had directed employees to instrumentality tactics to forestall subscribers from utilizing their unlimited service, according to prosecutors.

The erstwhile CEOs are charged with 1 number of securities fraud and 3 counts of ligament fraud. If convicted, they each look a maximum punishment of 20 years successful prison.